Amid elevated volatility it becomes difficult to navigate the market, therefore, Equity Savings Fund could be useful, Mirae Asset Mutual Fund said in a note. Equity Savings Funds are open-ended mutual fund programs that fall under the SEBI’s Hybrid category.
Mirae Asset Mutual Fund claims the combination of Equity, Arbitrage & Fixed Income works especially during volatile times.
Mutual fund investment: Lok Sabha elections and the stock market are deeply connected. Every election year, the market faces some volatility. This year has the same story as well. Elections can introduce uncertainty and potential policy changes, which can impact investor sentiment and market performance. Investors may be cautious and adopt a wait-and-watch approach until the election results are announced, leading to increased market volatility.
In India, it’s been observed as rundown to election comes nearer, the volatility in the market increases due to various factors. As can be seen through the India Volatility Index (VIX Index) in 2009, 2014 and 2019 general election period.
So far this year, there was an initial rise in the market before the elections. Nifty was at the level of 21,839 points on March 20, which reached 22,753 points on April 10. During this period, Sensex increased from 72,101 points to 75,038 points.
After this, the market declined, and by April 18, Nifty and Sensex slipped to 21,995 points and 72,488 points respectively. Since then Nifty has been trading between 22,750 points and 22,800 points and Sensex is trading between 72,000 points and 75,100 points.
Amid elevated volatility it becomes difficult to navigate the market, therefore, Equity Savings Fund could be useful, Mirae Asset Mutual Fund said in a note. Equity Savings Funds are open-ended mutual fund programs that fall under the SEBI’s Hybrid category.
What is Equity Savings Fund?
Equity Savings Fund usually invests in three asset classes: Equity, Arbitrage & Fixed Income. For any mutual fund to have equity taxation a minimum of 65% of net assets must be invested in equity or equity-related instruments. The net equity levels range somewhere from 15% to 45% and the remaining is invested in arbitrage.
So, for example, if the Net Equity level of an Equity Savings Fund is around 20%, a minimum 45% would be in arbitrage. The remaining 35% could be allocated to fixed income or arbitrage as well.
Equity Savings Fund investment
Mirae Asset Mutual Fund claims the combination of Equity, Arbitrage & Fixed Income works especially during volatile times.
5 reasons why to choose Equity Savings Fund
> At new highs, retail investors, especially the conservative ones, find it challenging to enter the market and allocate across assets.
> The recent rate pauses by the Reserve Bank of India (RBI) and the Federal Reserve suggest that interest rates may be peaking. Adding to all these, recent taxation changes in debt funds have made asset allocation even more complex for retail investors.
> In this regard, Equity Savings Funds from the hybrid category may be considered by investors with a modest risk appetite looking for downside protection.
> Apart from equity and debt, these funds use equity arbitrage via derivatives to reduce risks and potentially generate better inflation adjusted returns.
> These funds are suitable for those who cannot withstand too much volatility in the value of their investments.
“Equity asset class aids in wealth generation in the long term. As they are market linked they tend to face relatively higher volatility especially during uncertain times. Arbitrage is all about capturing the benefit from the mispricing opportunities between the cash and futures market in the equity segment. Arbitrage is relatively less risky than pure equities and so are the returns. Fixed Income is a relatively stable asset class and gives reasonable visibility of returns,” the AMC said.
Some of the popular Equity Savings Funds
| Funds | Fund size | Returns (p.a.) |
| UTI Equity Savings Fund Fund Size | Rs 357 crore | +13.07% |
| Mirae Asset Equity Savings Fund | Rs 1,020 crore | +12.99% |
| HDFC Equity Savings Fund | Rs 4,180 crore | +13.22% |
| Kotak Equity Savings Fund | Rs 5,132 crore | +13.42% |
| Mahindra Manulife Equity Savings Fund | Rs 485 crore | +13.73% |
| Edelweiss Equity Savings Fund | Rs 389 crore | + 11.84% |
| ICICI Prudential Equity Savings Fund | Rs 10,118 crore | +9.33% |
| PGIM India Equity Savings Fund | Rs 91 Crs | + 8.77% |
Disclaimer: The views and investment tips by investment experts are their own and not that of Business Today. Readers are encouraged to consult a qualified financial advisor or a SEBI-registered investment advisor before making any investment decisions.
